Determining Whether You May Exit Your Commercial Lease During COVID-19

When the coronavirus hit the United States in January 2020, it forced an economic shutdown across the country by March.  Soon, everyone was sent scrambling for their livelihoods – especially small business owners.  Today, even as the country is opening, many small businesses are struggling to stay afloat and looking into their options for financial relief.  For some, unfortunately, the only viable option is to shut their doors for good.

One common question for small business owners is what happens if they are forced to shut down due to Coronavirus in the middle of their lease?  Can a business legally exit their commercial lease before it ends?  Here, we will examine the issue in depth and the options available according to the law.

How Has COVID-19 Affected Small Businesses?

At the height of COVID-19, non-essential businesses were forced to either close their doors entirely or restructure to a delivery or pick-up only model. Examples of non-essential businesses include:

  • Restaurants
  • Clothing Boutiques
  • Home Goods Stores
  • Gyms
  • Salons
  • Music/Entertainment Venues

Small businesses often have small margins for income-loss.  When there is no money coming in, one of the only options is to terminate their lease.  There are very few commercial leases, however, that allow tenants to end their lease early without penalty.

Understanding the Terms of Your Commercial Lease

Your lease terms are the terms that outline when your lease begins and ends and how you are required to behave during your lease.  Before you sign a lease, you should understand the terms should you end up in a situation where you have no other option but to end it.  Common terms you should know include:

Continuous Operation Provisions: Some commercial leases, especially for shopping centers and businesses within a larger complex, include continuous operation provisions.  Meaning, the business under the lease is required to operate for a specific number of hours every day or week.  If they do not meet these terms the landlord can terminate their lease.

Abandonment Provisions: Many small business leases include abandonment provisions.  These provisions outline that the landlord can terminate a tenant’s lease if they have not occupied the building for a certain period of time. 

Force Majeure: This lease term explains situations tenants cannot control including weather, labor strikes, and fires.  Leases that include force majeure terms give tenants a way out of their lease if such an event occurs.

Depending on the terms of the lease, COVID-19 could be an applicable situation for any of these terms.

How Small Business Owners Can Work with Landlords on their Leases

Very few people have escaped COVID-19 unscathed and many businesses and consumers need to negotiate with the creditors and landlords.  The first thing you can do if you are suffering financially as a business owner is to talk to your landlord. You might be able to:

  • Temporarily pause your lease
  • Negotiate penalties for ending your lease early
  • End your lease early with no penalties

As with any business negotiation involving a contract, it is best to have a trusted attorney on your side to represent you and guide you through the process.  Even if you know and trust your landlord, you need to protect your most important asset – your business.

Trusted Legal Representation for Your Small Business Debt

The attorneys at McCarthy Law are a trusted source of legal representation for all of your small business needs including merchant debt. They are skilled at negotiation and will work tirelessly to come to an agreement with your best interest in mind. To schedule a consultation with a knowledgeable and experienced small business attorney, call our office at 855-976-5777 or fill out an online contact form today.

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Garrett F. Charity

Garrett F. Charity

Garrett F. Charity is Lead Attorney in the McCarthy Law PLC Los Angeles, California office and a member of the California Bar. He received his Bachelor of Arts Degree in Art History from Princeton University and his Juris Doctor Degree from Southwestern University School of Law where he was a recipient of the Schumacher Scholarship.